From rent roll to value on an illustrative 50,000 sq ft store, and the test every self-storage rent roll needs because it has no leases.
Value a self-storage facility by capitalising its net operating income: collected rent plus ancillary income, less operating costs and a management fee charged even if the owner runs it, divided by a cap rate. On an illustrative 50,000 sq ft store at 87.0 per cent occupancy, NOI is £905,532 and at a 6.25 per cent cap rate the store is worth £13,566,022 net of purchaser's costs, £271 per sq ft. Then test the rent roll: resetting every customer to the street rate takes 10.8 per cent off that value.
Worked in full in Self-Storage Real Estate by Julian R. Sterling, with every figure reproduced in a free workbook.See the book on Amazon →
A single store with 50,000 sq ft of net rentable area. The rent roll shows an average in-place rent of £30.00 per sq ft a year, above the £27.50 the website charges new customers, because existing customers have had rate increases since they moved in. Every figure, and the cap rate, is illustrative.
| Input | Value |
|---|---|
| Net rentable area | 50,000 sq ft |
| Occupancy, by area | 87.0% |
| Average in-place rent | £30.00 per sq ft |
| Street rate | £27.50 per sq ft |
| Discounts and bad debt | 4.0% of scheduled rent |
| Ancillary income (protection, retail, fees) | £85,000 |
| Management fee | 6.0% of revenue |
| Cap rate (illustrative) | 6.25% |
| Purchaser's costs | 6.8% |
1. Rent collected. 87.0 per cent of 50,000 sq ft is 43,500 sq ft let. At £30.00 the rent roll bills £1,305,000; discounts and bad debt take £52,200, leaving £1,252,800 collected.
2. Revenue. Add ancillary income of £85,000: total revenue is £1,337,800. Tenant protection is a genuine, high-margin income line in this asset class and belongs in NOI, but confirm whether the operator or the owner keeps it.
3. Operating costs.
| Line | Per sq ft | Total |
|---|---|---|
| Staff | £2.40 | £120,000 |
| Business rates | £1.90 | £95,000 |
| Utilities | £0.56 | £28,000 |
| Marketing and web | £0.80 | £40,000 |
| Insurance | £0.34 | £17,000 |
| Repairs and maintenance | £0.44 | £22,000 |
| Other (card fees, IT, audit) | £0.60 | £30,000 |
| Operating costs | £7.04 | £352,000 |
| Management fee, 6.0% of revenue | £80,268 |
4. NOI and value.
NOI = 1,337,800 − 352,000 − 80,268 = £905,532, a 67.7% margin and £18.11 per sq ft
Gross value = NOI / cap rate = 905,532 / 0.0625 = £14,488,512
Net value = 14,488,512 / 1.068 = £13,566,022, or £271 per sq ft
Excel: =(NRSF*Occ*InPlace*(1-Leak)+Ancillary)*(1-Fee)-Opex for NOI, then =NOI/Cap/(1+Costs)
Costs including the fee absorb 32.3 per cent of revenue. Self-storage runs leaner than most operational real estate because there is little to service between move-in and move-out, which is why its margins look closer to industrial than to hotels.
A self-storage customer can leave at a month's notice. The £30.00 in-place rent is 9.1 per cent above street, earned by raising existing customers' rates, and the store holds it only as long as those customers stay. A buyer has to ask what the store is worth if that premium is not durable.
Reset every customer to the £27.50 street rate and scheduled rent falls to £1,196,250, revenue to £1,233,400, and NOI to £807,396. NOI falls by £98,136, 10.8 per cent, and so does value: £12,095,820, £1,470,202 lower. The premium over street amplifies on the way through, because operating costs do not fall with the rent. Whether a rate increase programme is sustainable is what how many move-outs a rate increase can afford works out.
The reverse holds for a store that lives on deep move-in discounts. There the in-place rent can sit below street, and a valuation on street rate overstates what the rent roll will collect.
| Occupancy | 5.75% | 6.25% | 6.75% |
|---|---|---|---|
| 80% | £13,202,736 | £12,146,517 | £11,246,775 |
| 85% | £14,304,836 | £13,160,449 | £12,185,601 |
| 87% | £14,745,677 | £13,566,022 | £12,561,132 |
| 90% | £15,406,937 | £14,174,382 | £13,124,428 |
One point of occupancy adds £13,536 of NOI and £202,787 of value, because almost every pound of extra rent drops straight through: only the 6.0 per cent fee and the leakage come off it. Half a point on the cap rate is worth roughly as much as five points of occupancy, so the yield argument deserves at least as much evidence as the occupancy forecast.
A store run by its owner may show no management fee in its accounts, since head-office costs sit elsewhere. A buyer that capitalises those accounts as they stand adds £80,268 to NOI, £985,800 in all, and values the store at £14,768,539: £1,202,517, or 8.9 per cent, too much. Any buyer, including one that will run the store itself, should charge a market fee, because the cap rate it is applying comes from transactions in which the income was struck after one. The same logic applies to central marketing and call-centre costs that a single-store P&L omits.
For the revenue line on its own, see how to calculate REVPAF. The book values a 590-unit store from a cohort model of its customers, and the free workbook for this case takes it from the rent roll through ten years of cash flow to the bid.
Self-storage margins are high because there is little to service between move-in and move-out. On the illustrative store here operating costs of £352,000 plus a 6.0 per cent management fee absorb 32.3 per cent of revenue, leaving a 67.7 per cent NOI margin. Small or newly opened stores carry a higher cost ratio until occupancy builds.
Use the in-place rent the rent roll actually collects, then test it against street. Here in-place is £30.00 per sq ft against a £27.50 street rate. Resetting every customer to street cuts NOI by £98,136 and value by £1,470,202, 10.8 per cent, the size of the bet on the rate increase programme continuing to hold.
On a 50,000 sq ft store at £30.00 in-place rent with 4.0 per cent leakage and a 6.0 per cent fee, one point of occupancy adds £13,536 of NOI. At a 6.25 per cent cap rate net of 6.8 per cent purchaser's costs, that is £202,787 of value.
This article is one calculation from Self-Storage Real Estate. The book takes the same case from first principles to the decision, chapter by chapter, and every figure it prints is a live formula in the free companion workbooks.
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